Proposed budget boosts funding for education and healthcare. But plenty of uncertainties—and billions in debt—remain.

SACRAMENTO — After five years of crippling deficits, Gov. Jerry Brown announced Thursday that the state is in the black as he proposed a $97.7-billion budget that would increase funds for education and healthcare while still leaving money on the table.

The governor's optimism followed an unanticipated leap in revenue that helped cancel the $1.9-billion deficit estimated only months ago, according to the administration. And the state this year will begin to reap the benefits of tax increases he championed last year.

Brown would increase overall spending by 5%, buoyed by forecasts of an improving economy and higher tax receipts. His plan includes few of the spending cuts that have characterized recent state budgets.

"We're talking about living within our means," Brown told reporters at a Capitol news conference. "This is new. This is a breakthrough."

The governor would increase spending on schools by nearly $3 billion, including money for measures to make them more energy-efficient. Brown also would commit $350 million to expanding the state's medical program for the poor as part of President Obama's healthcare overhaul.

Aid to the needy would rise slightly, avoiding the reduction in welfare rolls that legislators have repeatedly made to balance the books.

Administration officials said the state could end the current fiscal year with $785 million left, partly because wealthy Californians rushed to cash out investments to avoid federal tax hikes. Brown said his plan would then keep the state in the black for a few years.

Even with the state's books technically balanced, California will have billions of dollars in debt from pensions and other benefits promised to public employees and from borrowing that has not been repaid. The governor's plan deals with only a fraction of that.

And Brown acknowledged that California's financial progress could slip. Budget negotiations in Congress may imperil the state's climb out of a damaging recession, and the federal government could restrict his ability to limit spending on prisons and healthcare.

Moreover, the administration's economic forecast was finished before President Obama signed legislation averting the fiscal "cliff," so some of the governor's assumptions about federal tax policy are likely to change.

Brown's positive outlook also relies on more optimistic estimates than those made by legislative analysts when it comes to savings from dissolving local redevelopment agencies.

Still, the governor proposed several changes to set aside a $1-billion reserve, including the revival of $364 million in taxes on managed care plans in the public healthcare program and the extension of $310 million in fees on hospitals.

Although Brown's proposal increases general fund spending, it doesn't roll back many of the deep cuts deplored by Democratic lawmakers even as they approved them in the past.

"I want to advance the progressive agenda but consistent with the amount of money people made available," the governor said.

Brown, who convinced voters in November to temporarily increase the sales tax and income levies on the wealthy, said the next few months of negotiations with lawmakers "will require a lot of charm."

A final budget is due in June for the fiscal year that begins July 1. Legislative leaders said they would look for ways to restore funding for courts, social services and dental care for the poor.

Assembly Speaker John A. Pérez (D-Los Angeles) said Brown's proposal is "a very good start, but it's that, it's a start." He added, "We reserve the right to improve as we always do."

Republicans, whose influence in the Legislature plummeted when Democrats won supermajorities in both houses, praised the potential increases for education but were skeptical of the governor's ability to limit spending.

"It's going to be very, very difficult for the governor to keep the horses in the barn," said Senate Republican leader Bob Huff (R-Diamond Bar). "He's talking a good talk. It remains to be seen what he'll deliver."